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Baker Hughes Announces Second Quarter Results

HOUSTON, Jul 29, 2004 /PRNewswire-FirstCall via COMTEX/ -- Baker Hughes Incorporated
(NYSE: BHI) announced today that, in accordance with generally accepted
accounting principles (GAAP), income from continuing operations for the second
quarter of 2004 was $116.3 million or $0.35 per share (diluted), up 41%
compared to $82.4 million or $0.24 per share (diluted) for the second quarter
of 2003, and up 23% compared to $94.4 million or $0.28 per share (diluted) for
the first quarter of 2004.

Yesterday, the company announced that it had entered into an agreement
with Atlas Copco North America, Inc. for the sale of Baker Hughes Mining
Tools, "BHMT". The closing, which is subject to satisfaction of certain
closing conditions, is expected to occur by the end of the third quarter.
Accordingly the company has classified and is now reporting BHMT as a
discontinued business for all current and prior periods. Revised revenue,
operating profit (see definition below in Operational Highlights), capital
spending and depreciation and amortization for prior quarters, beginning with
the March 2001 quarter, can be found on the company's website at
http://www.bakerhughes.com/investor .

Net income for the second quarter of 2004 was $116.5 million or $0.35 per
share (diluted) compared to $81.6 million or $0.24 per share (diluted) for the
second quarter of 2003 and $94.6 million or $0.28 per share (diluted) for the
first quarter of 2004.

Revenue for the second quarter of 2004 was $1,499.0 million, up 15%
compared to $1,305.7 million for the second quarter of 2003 and up 8% compared
to $1,387.6 million for the first quarter of 2004.

Michael E. Wiley, Baker Hughes' chairman and chief executive officer,
said, "Total operating profit before tax was up 36% compared to the second
quarter a year ago and each of our divisions reported double digit operating
margins. Continued improvement in many of our non-North American markets more
than offset seasonally weak results from Canada."

Commenting on the outlook for 2004, Mr. Wiley continued, "Our outlook for
the balance of the year is positive. Expected strong activity in the North
American land market and growth in international markets should continue to
improve capacity utilization, resulting in margin growth. Our optimism
regarding activity levels and the potential pricing and margin improvement are
reflected in our increased guidance for the year."

Financial Flexibility

During the second quarter of 2004, debt decreased $140.0 million to
$1,311.9 million, and cash decreased $108.3 million to $47.4 million. The
company repaid fixed-rate debt issues that came due in May 2004 and June 2004
for $100.0 million and $250.0 million, respectively, from cash on hand and
short-term commercial paper borrowings. In the second quarter of 2004, the
company's capital expenditures were $82.1 million, depreciation and
amortization was $91.2 million and dividend payments were $38.3 million.

In September 2002, the company's Board of Directors authorized the company
to repurchase up to $275.0 million of its common stock. During the second
quarter of 2004, the company did not purchase any shares. In total, the
company has purchased approximately 8.1 million shares at a cost of
$230.5 million and has authorization remaining to purchase up to $44.5 million
in stock.

Operational highlights for the three months ended June 30, 2004,
June 30, 2003 and March 31, 2004 are detailed below. WesternGeco is our
seismic joint venture with Schlumberger Limited. All results are unaudited
and shown in millions.

Comparison of Quarters -- Year over Year
(for the three months ended June 30, 2004 and 2003)
------------------------------------------------------------------------
Revenue Operating Profit(A)
Before Tax
Q2 2004 Q2 2003 Q2 2004 Q2 2003
------------------------------------------------------------------------
Oilfield Operations,
excluding WesternGeco $1,497.9 $1,305.7 $247.5 $197.9
WesternGeco --- --- 3.8 (5.8)
------------------------------------------------------------------------
Oilfield Operations 1,497.9 1,305.7 251.3 192.1
Corporate, net
interest and other 1.1 --- (73.8) (61.3)
------------------------------------------------------------------------
Total $1,499.0 $1,305.7 $177.5 $130.8
========================================================================
Comparison of Quarters -- Sequential
(for the three months ended June 30, 2004 and March 31, 2004)
------------------------------------------------------------------------
Revenue Operating Profit(A)
Before Tax
Q2 2004 Q1 2004 Q2 2004 Q1 2004
------------------------------------------------------------------------
Oilfield Operations,
excluding WesternGeco $1,497.9 $1,387.3 $247.5 $203.4
WesternGeco --- --- 3.8 9.0
------------------------------------------------------------------------
Oilfield Operations 1,497.9 1,387.3 251.3 212.4
Corporate, net interest
and other 1.1 0.3 (73.8) (68.3)
------------------------------------------------------------------------
Total $1,499.0 $1,387.6 $177.5 $144.1
(A) Operating profit is a non-GAAP measure comprised of income from
continuing operations excluding the impact of certain non-
operational items. The company did not have any such non-
operational items for exclusion in the second quarter of 2004, the
second quarter of 2003 or the first quarter of 2004. Operating
profit was the same as income from continuing operations for the
three periods referenced in this news release. The company believes
that operating profit is useful to investors because it is a
consistent measure of the underlying results of the company's
business. Furthermore, management uses operating profit internally
as a measure of the performance of the company's operations.
Reconciliation of GAAP and operating results for applicable
historical periods can be found on the company's website at
http://www.bakerhughes.com/investor . Further, the "investor
relations/financial information" section of the Company's website
includes a disclosure and reconciliation of non-GAAP financial
measures that are used in this release and that may be used
periodically by management when discussing the Company's financial
results with investors and analysts.

On July 12, 2004 the company announced that it had formed a separate
division, Baker Hughes Drilling Fluids. The new division is comprised of the
oilfield drilling fluids, completion fluids and fluids environmental services
businesses that were formerly part of INTEQ. These product lines accounted
for approximately one-third of INTEQ's revenue and a little more than one-
fifth of INTEQ's pre-tax operating profit in 2003. INTEQ will continue to
offer best-in-class drilling and evaluation products and services. All
references to "INTEQ" in this news release refer to INTEQ as it existed at the
end of the second quarter of 2004 before the split, unless explicitly
specified otherwise.

The following table details the percentage change in revenue in the
June 2004 quarter compared to the June 2003 quarter and March 2004 quarter.

Comparison of Revenue
(for the three months ended June 30, 2004 compared to the three months ended)

Revenue for the second quarter of 2004 increased 15% compared to the
second quarter of 2003 and increased 8% compared to the first quarter of 2004.
At INTEQ, sequential increases in revenue from Russia and the CIS, and Gulf of
Mexico were partially offset by seasonally lower Canadian revenue. Sequential
revenue increases at Baker Oil Tools were driven by Eastern Hemisphere
activity and US land revenue, offset by seasonally weak revenue from Canada.
At Baker Petrolite, sequential increases in Eastern Hemisphere and US land
revenue more than offset seasonal weakness in Canada and sequentially weaker
revenues from the balance of the Western Hemisphere. At Centrilift, record
revenues resulted from strong activity levels in Venezuela and the Eastern
Hemisphere, particularly Russia. At Hughes Christensen, sequentially higher
revenues from the Eastern Hemisphere offset seasonally weak revenues from
Canada. At Baker Atlas, the primary driver of the sequential decrease was the
shipment of a large export order in the first quarter that did not repeat in
the second quarter. Excluding this shipment, revenues declined from the first
quarter of 2004 as weaker revenues from Canada and the US offshore were only
partially offset by improved revenues from the Middle East, Latin America and
Europe. The decline in revenues at Baker Atlas from the second quarter of
last year was primarily a result of reduced activity in the Gulf of Mexico

The non-GAAP measure of pre-tax operating margin, which is operating
profit before tax divided by revenue, was 16.5% for the second quarter of 2004
compared to 15.2% for the second quarter a year ago and 14.7% in the first
quarter of 2004. Every division had double-digit operating margins in the
second quarter. INTEQ, Baker Oil Tools, Baker Petrolite, Centrilift and
Hughes Christensen reported improved margins compared to the same quarter last
year and INTEQ, Baker Oil Tools, Baker Petrolite and Centrilift reported
improved margins compared to the first quarter of 2004.

Operating profits were all-time records at both Centrilift and Baker
Petrolite and operating margins at Baker Petrolite were also at all-time
record levels.

Corporate, Net Interest and Other

Corporate, net interest and other expenses were $73.8 million in the
June 2004 quarter, up $12.5 million from the June 2003 quarter and up
$5.5 million from the March 2004 quarter. The increase in the June 2004
quarter, compared to both the June 2003 and March 2004 quarters, was primarily
from increased costs associated with our focus on compliance, including our
Sarbanes-Oxley implementation, legal investigations, and increased staffing in
our legal, compliance, and audit groups; higher annual employee bonus expense;
costs related to retained assets and liabilities from the Baker Process
segment; and net foreign currency exchange losses. This was offset partially
by reduced net interest expense as a result of lower debt levels.

Outlook

The following statements are based on current expectations. These
statements are forward-looking, and actual results may differ materially.
Factors affecting these forward-looking statements are detailed below under
the section titled "Forward-Looking Statements" in this news release. These
statements do not include the potential impact of any acquisition,
disposition, merger, joint venture or other transaction that could occur in
the future. Statements regarding WesternGeco are based on information
provided by WesternGeco and, therefore, are subject to the accuracy of that
information. Additionally, forward-looking statements relating to WesternGeco
are also subject to the factors listed under "Forward-Looking Statements" in
this news release.

-- Revenues for the year 2004 are expected to be up 10% to 12% compared
to the year 2003. Revenues in the third quarter 2004 are expected to
be up 14% to 16% compared to the third quarter 2003 and to be up 1%
to 3% compared to the second quarter 2004.
-- WesternGeco is expected to contribute $25 to $30 million in equity in
income of affiliates for the year 2004 (compared to a loss of
$10.3 million in 2003) and $3 to $7 million for the third quarter
2004.
-- Corporate and other expenses, excluding interest expense, are
expected to be between $195 and $205 million for the year 2004 and
approximately $48 to $52 million in the third quarter 2004.
-- Net interest expense is expected to be between $75 and $80 million
for the year 2004 and approximately $15 to $20 million in the third
quarter 2004.
-- Income from continuing operations per diluted share is expected to be
between $1.39 and $1.45 for the year 2004. Income from continuing
operations per diluted share is expected to be between $0.36 and
$0.39 in the third quarter 2004.
-- Capital spending is expected to be between $330 and $350 million for
the year 2004. Baker Hughes' expectation regarding its level of
capital expenditures is only its forecast regarding this matter.
This forecast may be substantially different from actual results. In
addition to the factors described under "Forward-Looking Statements"
below, the following factors could affect levels of capital
expenditures: the accuracy of the company's estimates regarding its
spending requirements; the occurrence of any unanticipated
transaction or research and development opportunities; changes in the
company's strategic direction; and the need to replace any
unanticipated losses in capital assets.
-- Depreciation and amortization expense is expected to be between $370
and $390 million for the year 2004. Baker Hughes' expectation
regarding its depreciation and amortization expense is only its
forecast regarding this matter. This forecast may be substantially
different from actual results, which could be impacted by an
unexpected increase in the company's assets that are subject to
depreciation or amortization or an unexpected casualty, impairment or
other loss in those assets.
-- The tax rate on operating results for the year 2004 is expected to be
approximately 34.5%. Baker Hughes' expectation regarding its tax
rate is only its forecast regarding this matter. This forecast may
be substantially different from actual results. In addition to the
factors described under "Forward-Looking Statements" below, the
following factors could affect the tax rate: the level and sources of
the profitability of the company; changes in tax laws or tax rates in
the jurisdictions in which the company operates; resolution of audits
by various tax authorities; and the ability of the company to fully
utilize tax loss carry-forwards and credits in various jurisdictions.

Conference Call

The company has scheduled a conference call today to discuss the results
of this earnings announcement. The call will begin at 8:30 A.M. Eastern time,
7:30 A.M. Central time, on Thursday July 29, 2004. To access the call, which
is open to the public, please contact the conference call operator at
800-374-2469, 20 minutes prior to the scheduled start time, and ask for the
"Baker Hughes Conference Call." A replay will be available through Thursday,
August 12, 2004. The number for the replay is 706-645-9291 and the access
code is 8089982. The call and replay will also be webcast on
http://www.bakerhughes.com/investor .

Forward-Looking Statements

This news release (and oral statements made regarding the subjects of this
release, including on the conference call announced herein) contain forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. The words "expect," "expected," "will," "plans," "planning," and
similar expressions are intended to identify forward-looking statements.

General Outlook - Oilfield Operations: Baker Hughes' expectation
regarding its outlook for its oilfield businesses (including, without
limitation, the company's oilfield operations), changes in profitability and
growth in those businesses and the oil and gas industry are only its forecasts
regarding these matters. These forecasts may be substantially different from
actual results, which are affected by the following factors: the level of
petroleum industry exploration and production expenditures; drilling rig and
oil and gas industry manpower and equipment availability; the company's
ability to implement and effect price increases for its products and services;
the company's ability to control its costs; the availability of sufficient
manufacturing capacity and subcontracting capacity at forecasted costs to meet
the company's revenue goals; the effect of competition, particularly the
ability of the company to introduce new technology on its forecasted schedule
and at its forecasted cost; the ability of the company's competitors to
capture market share; the company's ability to retain or increase its market
share; potential impairment of long-lived assets; world economic conditions;
the price of, and the demand for, crude oil and natural gas; drilling
activity; seasonal and other weather conditions, such as hurricanes, that
affect the demand for energy, and severe weather conditions that affect
exploration and production activities; the legislative and regulatory
environment in the United States and other countries in which the company
operates; outcome of government and internal investigations and legal
proceedings; changes in environmental regulations; unexpected, adverse
outcomes or material increases in liability with respect to sites where the
company has been named as a potentially responsible party; the discovery of
new environmental sites; the discharge of hazardous materials or hydrocarbons
into the environment; Organization of Petroleum Exporting Countries ("OPEC")
policy and the adherence by OPEC nations to their OPEC production quotas; war,
military action or extended period of international conflict, particularly
involving the United States, Middle East or other major petroleum-producing or
consuming regions; any future acts of war, armed conflicts or terrorist
activities; civil unrest or in-country security concerns where the company
operates; expropriation; the development of technology by Baker Hughes or its
competitors that lowers overall finding and development costs; new laws and
regulations that could have a significant impact on the future operations and
conduct of all businesses; labor-related actions, including strikes, slowdowns
and facility occupations; the condition of the capital and equity markets in
general; adverse foreign exchange fluctuations and adverse changes in the
capital markets in international locations where the company operates;
satisfaction of the closing conditions for the sale of BHMT, consummation of
the sale of BHMT, material adverse changes in the mining business; the timing
of any of the foregoing; and other factors described in the Company's public
reports filed with the Securities and Exchange Commission. The Company
assumes no responsibility to update any of the information referenced in this
news release.

Oilfield Pricing Changes: Baker Hughes' expectations regarding pricing
changes for its products and services are only its expectations regarding
pricing. Actual pricing changes could be substantially different from the
company's expectations, which are affected by many of the factors listed above
in "General Outlook - Oilfield Operations," as well as existing legal and
contractual commitments to which the company is subject.

Baker Hughes is a leading provider of drilling, formation evaluation,
completion and production products and services to the worldwide oil and gas
industry.